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Iridium knocked back to earth

The once high-flying satellite phone firm is facing financial and executive turmoil as its CEO leaves under pressure from the company's board.

Just how large is the market for people who need a phone in the middle of the desert?

Executives at Iridium, the world's first global satellite telephone company, may be asking themselves that same question, one day after chief executive Ed Staiano resigned under pressure from the company.

Staiano left due to disagreements on strategy with the board of directors, according to the company and analysts.

The once high-flying Iridium, with an estimated $5 billion orbiting constellation of 66 state-of-the-art satellites, is facing financial and executive turmoil. The move by Staiano, a former Motorola executive who will be replaced on an interim basis by John Richardson, follows the recent resignation of the firm's financial chief.

On its Web site, the company touts its service as a way to "keep you connected regardless of where you travel on Earth." But financial analysts said that although the company's vision of providing global phone service may have been a good one a decade ago, wireless technologies and the competitive landscape have changed dramatically since Motorola spun off Iridium in 1991.

"My concern here is that I don't know if it's the management here or the model," said Cynthia Motz, an analyst with Credit Suisse First Boston. "Frankly this has been a concept story from the very beginning. ? I don't know if [the board] exactly believes in the whole project any more."

"To me the question with this company has always been whether market demand exists, and if market demand does at these price points then they'll be fine. If it doesn't at these price points then they won't," Motz said. "Unfortunately when you've shot 5 or 6 billion bucks in the sky, and you've got to charge $3 to $6 a minute, and the handsets are $3,000, I don't know how much you can cut costs."

Coupled with production delays for the Iridium's expensive and bulky telephones--which some say make them less desirable than cheaper, lightweight cellular phones--the company has faced an uphill battle since its inception. As well, gaining the licenses and regulatory approval in hundreds of disparate nations has been no easy task.

Iridium's stock, in the meantime, has suffered accordingly.

Stock in the company fell more than 8 percent yesterday and closed another 6 percent lower today at 16--not far from its 52-week low. Shares have peaked as high as 72.1875 and as low as 14.375 in the past year, but were trading in the 40s as recently as mid-January. A year ago, Iridium stock was in the low 60s.

Staiano's departure follows the departure of chief financial officer Roy Grant last month when the company announced it would not meet certain subscriber goals set by its creditors.

First Boston's Motz downgraded the stock today to a "hold" rating from a "buy." Investment firm Salomon Smith Barney also cut its recommendation on the stock.

Still, some analysts say that despite Iridium's recent woes, satellite phone technology has a bright future.

"[Satellite phones] are going to work. It's not going to go away," said Jimmy Schaefler, a satellite analyst at communications consulting firm The Carmel Group. "Ultimately it's going to be the standard because it's ubiquitous, it's digital, and it's now."

Soon-to-be competitors such as Globalstar, which will launch a similar satellite phone service later this year, and London-based ICO, hope Schaefler's predictions hold true.

Iridium is set to report first quarter financial results Monday. Wall Street expects the company to post a loss of $3.17 a share, according to a consensus estimate polled by First Call.

Reuters contributed to this report.